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PROJECT REPORT ON POWER GRID

SUBMITTED TO: Ms.Ranjani Matta

SUBMITTED BY: Mohit Jain Pavneet Kaur Pranit Jain Rishabh Rajput Rohit Aggarwal

IILM INSTITUTE FOR HIGHER EDUCATION


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CONTENT
Introduction Corporate Governance Analysis Stock holder Analysis Cost of Capital Investment Return Analysis Capital Structure Choice Dividend Policy

INTRODUCTION

In 1980 the Rajadhyaksha Committee on Power Sector Reforms submitted its report to the GoI suggesting extensive reforms in the Indian power sector. Based on the recommendations of the Rajadhyaksha Committee, in 1981 the GoI took the policy decision to form a national power grid which would pave the way for the integrated operation of the central and regional transmission systems. Pursuant to this decision to form a national power grid, Company was incorporated on October 23, 1989 under the Companies Act, 1956 as National Power Transmission Corporation Limited, with the responsibility of planning, executing, owning, operating and maintaining the high voltage transmission systems in the country. It received a certificate for commencement of business on November 8, 1990. The name of the Company was changed to its present name Power Grid Corporation of India Limited and a fresh certificate of incorporation was issued on October 23, 1992. The name of the Company was changed to its present name from National Power Transmission Corporation Limited as its then abbreviated form, NPTC Limited, had close resemblance to another existing company, namely, NTPC Limited ("NTPC"). As on September 30, 2010, the total number of holders of Equity Shares of the Company is 792,096. The is presently listed on the BSE and the NSE.

MISSION OF THE COMPANY Establishment and operation of Regional and National Power Grids to facilitate transfer of electric power within and across the regions with Reliability, Security and Economy, on sound commercial principles.

The major events in the history of the Company since its incorporation in 1989.
1989 Company was incorporated as National Power Transmission Corporation Limited. 1991 Transmission assets from Nuclear Power Corporation Limited were transferred to it pursuant to a memorandum of understanding executed between the parties. 1992 Transmission assets from NTPC, NHPC and North-Eastern Electric Power Corporation Limited were transferred to it pursuant to legislation promulgated by the Parliament. The name of the Company was changed from National Power Transmission Corporation Limited to Power Grid Corporation of India Limited. 1995 Company took over the management of the Eastern Regional Load Despatch Centre and the North Eastern Load Despatch Centre.
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1996 Company took over the management of the remaining two regional load despatch centres, namely, the Northern Regional Load Despatch Centre and the Western Load Despatch Centre. 1998 Our Company formulated an Environment and Social Policy and Procedures Code to deal with environmental and social issues relating to its transmission projects. Company was formally notified as a CTU by the GoI. and it was declared as a Mini Ratna Category I public sector undertaking by the GoI. 2001 Company was granted Infrastructure Provider II license (IP II) from the Department of Telecommunications, GoI to pursue leasing of bandwidth capacity to various customers on its telecommunications network. 2003 Company entered into a joint venture arrangement with The Tata Power Company Limited implementing a part of the entire transmission system associated with Tata HydroElectric Project which was the first public-private sector initiative in the transmission sector. Company entered into an agreement with REC and certain state governments and state utilities for undertaking rural electrification works under the Rajiv Gandhi Grameen Vidyutikaran Yojana in nine states in India. 2007 Dedication of transmission system associated with Tata Hydro-Electric Project which was the first public-private sector initiative in the transmission sector by the Prime Minister Dr. Manmohan Singh. 2008 Company was declared as a Navratna public sector undertaking by the GoI. 2009 The National Load Despatch Centre was established. Subsidiary, Power System Operation Corporation Limited, was incorporated Company was mentioned as the worlds third largest transmission utility by a news release issued by the World Bank. 2010 Company was selected as a consortium member to implement the National Knowledge Network Project, a telecommunication infrastructure project. 2011 Company entered into an MoU with Jamia Millia Islamia University for the training and certification of its System Operators in Supervisory Control And Data Acquisition (SCADA) technology.

Corporate Governance Analysis


Corporate governance report is all about promoting corporate fairness, transparency and accountability in the best interest of various stakeholders in the company. It is a system in which business corporations are directed and controlled. Power grid believes that good governance should entail trusteeship, empowerment and accountability of management while remaining proactive to government policies. Operations of power Grid Company runs on two major objectives which are To meet the short and long term objectives and specific targets run by government of India. For the Economic development of the country should be ready to face all the challenges and make use of all the opportunities.

Balance of power It specifies all the Powers and responsibilities of each individual in the organization and all the decisions regarding development, diversification, procurement of finance etc are taken after the approval of board. The conditions for the board of companies are in compliance with corporate governance analysis as Power Grid is a government company under companys act 1956 so 86.36% of total capital is in the hands of president and president is given the complete power to appoint the director of the company.

Manifestation The power and positions of management in the organizations are very well supported by remuneration in Power Grid, since it is the government company so remuneration is decided by the President of India. The top managers of Power Grid are compensated at a very decent remuneration as Chairman Mr. S.k. chaturvedi of company has a earning of around Rs 23.32 lakhs. And other directors at highest of positions in company such as Finance, Operations and projects are remunerated with about pay of Rs 24-30 lacs. Name of Directors 1. Shri J. Sridharan Director (Finance) 2. 3. Shri V.M. Kaul Director (Personnel) Shri R.N.Nayak* Director (Operations) Remuneration ( Lacs) Rs 25.49 Rs29.96 Rs 24.09 Rs 23.13 Rs 31.60
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4. Shri I.S.Jha Director (Projects) 5. Shri S. Majumdar Director (Projects)

Performance in terms of Earnings and Stock price Power grid is performing stupendously in terms of its managerial performance and the results show itself its huge success in terms of its earnings and stock price. The Net profit of Power Grid has move up to 2040.9crores financial year 2010 as against 1690.6crores in the previous financial year 2009. And also looking at stock price to P/E ratio comparing it with previous year which was just Rs20.56 per share and has move up to Rs 32.16 per share.

Stock Holder reaction Within the power sector it is the Power Grid which will be the no. one option for Stock holders as it is a safe play for stock holders since structure of business is such where it will be guaranteed rate of return on investments and guarantee to return on capital asset.

Power grid with Social responsibilities Along with its corporate performance Power grid has also very well fulfilled its responsibilities towards society and started with activities like Community Development around its offices and sub-stations with focus area on Education, Health-care & Infrastructure Development and support Ecology & Environment Conservation and Disaster Relief in the country. The Power Grid initiatives also aim to improve quality of life of the local people and bringing the marginalized people in the mainstream of development. From this year, the budget towards society has been increased from 0.75% to 1.00% of the Companys net profit after tax of the preceding financial year.

Stock Holder Analysis


Stock holder composition of Power Grid is shown by the pie chart under as follows: The pie chart segments the stock holdings of power grid into Mutual funds, Fiis, banks and Fi etc.

% to equity
President of India Fiis Bank and Fi 1% 1% 2% Promotors Body Corporate Nri 0% 4% Indian Public Mutual Fund Others

2% 0% 4%

86%

The Stock holding analysis tells that major portion that is 86% of shares is held by President of India. The other share of stocks of major portion is held by Indian public, Body corporate and Fi i.e is 4.23%, 1.84% and 1.53%. And the rest the margin portion is just hold by Mutual funds, Fiis and Promoters. The stock holder Analysis states that Apart from the shares held by President of India being a government company the maximum holding is done by Indian investors. Another fact that arises from analysis is that Power Grid has a very little of Foreign institutional investment in the company.

Cost of Capital
Cost of Debt To estimate power's cost of debt .we obtained the current bond rating of the company. If the company was not rated.we used it intrest coverage ratio to determine a synthetic to bond rating .we based cost of debt calculations on long term tresurary bonds i.e .bonds 6 th series to bonds 13 th series and added the respective spreads for each company to this rate. To calculate the after-tax cost of debt, we used the following formula: After-Tax Cost of Debt = (LT bond rate + Spread)(1-tax rate) The marginal tax rates for each company depended on where they conducted business, and added percentage points to the statutory tax rate of 30%. For example, reliance power conducts business primarily in the haridwar, yet must also look at any tax issues in other countries. Therefore, we used a 35%% tax rate in determining the after-tax cost of debt for reliance On the other hand, power grid has less penetration than reliance power, and thus a marginal tax rate of 30% is more appropriate for determining their after-tax cost of debt. So , the cost of debt = 8.91%(1-30%) = 6.24% cost of equity to know the cost of equity from the dividend than we need to know how much final dividend will be declared by power grid's So after knowing the percentage we calculate the value of cost of equity which help to know the cost of capital of power grid 's pvt to ltd. So the formula for calculations of cost of equity is = D= MP= G= ( D/MP*100+G ) Dividend for the year market price of the share Growth rate

= =

1.5/107.5*100+12.50% 14%(APPROX)

COST OF CAPITAL The cost of capital of a company is the average rate of return required by investors who provide long term funds (equity, preference, and long term debt). A central concept in financing decisions, the cost of capital is important for two reasons: 1. For evaluating capital investment proposals an estimate of the cost of capital is required. As we have seen, the cost of capital is the discount rate in NPV calculation and also the financial benchmark against which the internal rate of return is compared 2. To maximize the value of the firm, costs of all inputs (including the capital input) must be minimized. In the context the firm should what its cost of capital is and what are its key determinants Particular Shares weights cost weighted average cost of capital 1.66% 5.50%

Equity shares Preference shares

4208841230 31345782340

11..84% 88.2%

14% 6.24%

Total

35554620570

100%

7.16%

WEIGHTAGE OF SHARES AND DEBENTURES IN POWER GRID CO.

CAPITAL STRUCTURE COST OF EQUITY COST OF DEBT PARTICULARS %OFEQUTY %OF DEBT 0 1 0.1 0.9 0.2 0.8 0.3 0.7 8.568 0.4 0.6 9.344 0.5 0.5 10.12 0.6 0.4 10.896 0.7 0.3 11.672 0.8 0.2 12.448 14 6.24

COST OF CAPITAL 6.24

7.016 7.792

ANALYSIS Since we know cost of capital is calculated on the basis of cost of equity and cost of debentures so as calculated above we have analyzed that company paid the total dividend of 15% and has growth rate of 12.5% so the cost of equity is 14% and calculating cost of debentures we came up with 6.24% so this gave our result for cost of capital to the company that lasts up to 7.16% which is good for the company as it has made the growth and help in increase the wealth of the firm..

Capital Structure
Capital structure is a company mixture of long term debt, specific short term debt, common equity and preferred equity. The capital structure is how a firm finances its overall growth and operations by using source of funds. Since in case of Power Grid we analyze that company cost of equity is 14% and cost of debt is 6.24% and currently using the data we came to the conclusion that current cost of capital of company is 7.16% therfore currently company is using 11,84% of equity to total capital and 88%of debt which is being operated at reasonable rate. Taking the table calculated below findings we came up with is that if company operates at 100% debt then it would cost company 6,24% cost of capital , so the mixture of debt and equity used by company is a good combination.
value share capital debentures totl value 4208.84 31345.78 35554.62 weightage cost 11.84 88.16 weighted

0.14 1.6576 0.0624 5.501184 7.158784

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Dividend Policy
Year Total paid up Capital till 31st March 2007-08 03.10.2008 2008-09 29.09.2009 2009-10 25.01.2010 4208.84 505.08 18.09.2008 Interim Dividend Date of Declare Payment Date

4208.84

505.08

09.09.2009

4208.84

210.46

06.01.2010

Since the above table shows the payment of Interim dividend for last three consecutive years. Company has declared interim dividend in 2009-10 of 5% i.e RS .50 which is comparatively less from the past year in 2007- 08 and 2008-09. Payout Interim dividend ratio For year 2009-10 is Dividend paid/total paid up capital which comes out to be 5% which is comparatively very less as compared to its previous that was 12%. With this analysis we come to conclusion that Interim dividend declared by the company was comparatively less than the previous years.

Final Dividend Taking up the Final dividend company has paid the dividend of 10% that is Rs 1 of the face value that is Rs 10. In 2009-10 company had paid up capital of 4208.84 crores had declared a final dividend of Rs 420.84 crores. This is comparatively higher than the past years. The declaration of total dividend was higher resultant company was able to maintain justifiable cost of capital and this has helped stock holders to increase their earnings and taking up the external factor it helped Power Grid to increase the market value since it helped to increase the price of share.

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